Twitter Rallies to a 6-Year High

Twitter Inc. (TWTR) rallied to a 6-year high in the first hour of Wednesday’s U.S. session, following a key JPMorgan upgrade. The stock has been on a roll so far in 2020, now posting an impressive 72% year-to-date return. Even so, the social media giant is still trading 20 points below December 2013’s all-time high at 74.73, highlighting years of sub-par performance compared to rival Facebook Inc. (FB) and other industry players.

Trading at Discount to Rivals

The stock is trading at a substantial discount to Snap Inc. (SNAP) and Pinterest Inc. (PINS), with both issues zooming to all-time highs this year. However, a new advertising platform, ongoing activist pressure, and a management buyback plan are improving mixed sentiment, raising odds the company will earn up to 30 times 2022 EBITDA (earnings before interest, taxes, depreciation, and amortization) and 9.5 times projected 2022 revenue.

JPMorgan analyst Doug Anmuth upgraded the stock to ‘Overweight’ on Wednesday, raising the price target to $65 while noting, “we are bullish on online advertising in 2021 and expect industry growth to reaccelerate. We believe Twitter will show the biggest rebound given its sharper pandemic-driven ad decline, along with revenue prioritization throughout the company, early benefits from rebuilt ad tech through the new Ad Server and rollout of Map 2.0, and increases in both advertiser count and ad load”.

Wall Street has been playing ‘catch-up’ throughout the year, with Twitter outperforming their modest expectations. Consensus stands at a mixed ‘Hold” rating based upon 7 ‘Buy’ and 19 ‘Hold’ recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $36 to a Street-high $65 while the stock opened Wednesday’s session $8 above the median $47 target.

Wall Street and Technical Outlook

A 7-week rally has now mounted resistance at the .618 Fibonacci retracement of the 2013 to 2016 downtrend at 51, opening the door to continued upside that should reach the .786 retracement at 62. That price level is narrow-aligned with multiple whipsaws that followed the 2014 reversal, marking the last major barrier before Twitter reaches and tests the all-time high in the 70s. While all systems are ‘go’, a trip into that peak could easily take another 6 to 12 months.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

A Wall of Worry Provides a Great Buying Opportunity for NFLX and SNAP

For a bull trend to perpetuate it occasionally needs to climb a wall of worry. Bearish investors are always on the lookout for a theme that will provide them with an opportunity to short a stock or sector. If prices rise, investors who shorted-shares will need to cover, perpetuating the bull-trend rally. This concept has recently played out when it comes to large-tech and communication stocks which have seen their stock prices temporarily decline as regulatory scrutiny has become the next wall of worry.

Congress is Always Looking to Flex in Muscles

Congress always needs a whipping boy. Social media outlets continue to be the target of congressional frustration and more recently have been drawing the ire of several oversight committees. Most recently, Facebook and Google have been accused of engaging in anti-competitive, monopoly-style tactics. The House of Representations antitrust panel found during a 16-month investigation that these two companies relied on dubious, harmful tactics to achieve their dominance in web search and social networking. The Department of Justice announced on October 20, that it will file an antitrust lawsuit against Google.

Social media platforms, like Facebook, and Snapchat,  have repeatedly found themselves in the United States government’s crosshairs as their power has continued to grow since the 2016 elections. Social media companies have no designated oversight authority that regulates their activities.  If these companies get slapped with new rules, regulations, and fines it could trigger a broad market selloff for stocks. This fear has recently been priced into some of the more attractive large-cap tech shares which have provided an excellent buying-point within a long-term bull trend.

Buying Opportunity in Snapchat

Snap Inc, is an American company and maintains several products and services, namely Snapchat, Spectacles, and Bitmoji. The share price is in the midst of a bull trend but recently pulled-back into oversold-territory as the wall of worry gained traction. SNAP is scheduled to release quarterly earnings results after the closing bell on October 20, 2020. The social media concern is expected to report earnings per share of  $-0.05 versus $-0.04 a year ago, on revenue of $549 million. Analyst estimates of SNAP’s earnings have remained unchanged over the past 30-days, and the company is expected to begin turning a profit in 2021.

From a technical analysis perspective, SNAP share price is in a strong uptrend as seen on the combo chart of the 30-minutes and daily chart provided. I see SNAP with potential measured move using a Fibonacci extension to reach $39 per share before the year-end.

Notice the oversold zone on the SNAP chart shaded lime green. That is the first oversold pullback after a new trend takes place. The 30-minute price chart saw both an RSI below 30 and a fast stochastic below 20, which is an ideal low-risk entry point. The daily chart of SNAP also shows that the share price is fast approaching its all-time high which occurred right after its IPO. A break of this level will lead to an acceleration in price to its target Fibonacci level near $39 per share.

Netflix Has its First Oversold Pullback in a Fresh New Uptrend

I believe that Netflix’s business model of providing subscriptions to streaming entertainment is benefitting substantially from COVID-19. The company is scheduled to report financial results after the bell on October 20, 2020. The company is expected to deliver earnings per share of $2.13 versus $1.47 per share a year ago. Revenue is forecasted to rise to $6.38 billion.  The average earnings per share estimate have climbed slightly more than 1% during the last 7-days. Growth estimates are expected to expand by nearly 45%. Global subscriptions are forecast to rise sharply higher as the U.S. unemployment rate surged and more people were stuck at home during the pandemic.

The technical picture shows that NFLX recently dipped as the wall of worry drove prices down temporarily. NFLX is in a fresh new uptrend and just had its first oversold zone pullback. The 30-minute chart reflects a decline where the fast stochastic printed a reading below 20 representing an oversold situation. A breakout of the tight range capped by resistance near $560 a share will lead to a test of target resistance with an upside Fibonacci target of $742.

The Bottom Line

For stock prices to continue to rally they generally need to take a pause. During these pauses, new information can arise that allows bearish investors to short these stocks generating a wall of worry. For me, this represents an excellent opportunity to purchases shares especially during their first dip in a fresh uptrend. Both SNAP and NFLX have experienced recent dips, generated by the wall-of-worry associated with new potential congressional oversight concerning antitrust regulations.

Both NFLX and SNAP are scheduled to deliver financial results after the closing bell on October 20. Both stocks have exhibited behaviors that show that the bull-trend is intact and I expect the price to continue to target higher Fibonacci target levels as these stocks continue to climb the wall-of-worry.

Want to learn how we help traders and investors stay ahead of these bigger trends and setups?  Visit www.TheTechnicalTraders.com to learn more about the Technical Trader, my swing trade analysis and alerts, and the Technical Investor, my passive long-term signals service. Stay ahead of the market and protect your wealth by signing up today!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

 

Snap Could Break Out To New High

Snap Inc. (SNAP) surged to the highest high in nearly two months on Thursday after announcing the launch of personalized public profiles and advanced analytics to their global user base. The initiative expands on prior permissions that allowed only verified celebrities, brands, and official creators to build static profiles, which contain short biographies, recent content listings, and customized lenses.

Snap Expands User Customization

All users can now set up profiles with account photos, bio sections, text descriptions, locations, email contacts, and URLs. They can also customize a creator-curated collection of recent photo/video uploads as well as everything published through the lens studio. New profile features include ‘Stories Replies’, where users can discuss their stories and ‘Quoting’, which allows creators to share and respond to follower inquiries.

Bank of America analyst Justin Post said in a Thursday note he expects the Snap initiative to underpin share price, commenting, “Snap plans to roll out this functionality globally in the coming months…With this announcement Snap blends together existing Snap functionality with new features that are common to apps including TikTok, Instagram, and Twitter and we see a number of potential engagement drivers if the functionality gains traction”.

Wall Street And Technical Outlook

Wall Street consensus rates Snap as a ‘Moderate Buy’, based upon 19 ‘Buy, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $16 to a street-high $30 while the stock is trading less than $3 below the median $26 target in Thursday’s U.S. session. There’s plenty of room for upside in this placement but new investors may wait for more bullish catalysts before jumping on board.

Snap came public at 24 in March 2017 and posted an all-time high at 29.44 in the following session. The subsequent decline hit an all-time low at 4.82 in December 2018 while price action into July 2020 stalled within 5 points of the 2017 high. The stock pulled back into August and has now bounced off the 50-day EMA, raising odds it will complete the long-awaited round trip. Accumulation readings have already hit new highs, indicating that price may soon follow.

Snap Q2 Losses Widen But Revenue Increases; Target Price $28

Snap Inc, an American camera and social media company, reported that its net loss widened in the second quarter to about $326 million as the company suffered a blow from the COVID-19 pandemic, sending its shares down over 2%.

The camera company that develops Snapchat and Spectacles reported that its net loss rose to $326 million in the quarter ended in June, compared to $255 million in the previous year. However, the company’s revenue from advertisement sales surged over 15% to around $454 million.

The Los Angeles-based company said its daily active users (DAUs), a closely watched metric, increased by 17% year-over-year to 238 million in Q2.

“From a macro perspective, SNAP is benefiting from and driving the accelerating structural shift toward transaction/performance-related online ad spend. Essentially, we believe surging e-commerce and rising social commerce have caused an accelerating shift away from less measurable branded spend,” said Brian Nowak equity analyst at Morgan Stanley.

Given the uncertainties related to the ongoing COVID-19 pandemic and the rapidly shifting macro conditions, the company did not provide any expectations for revenue or Adjusted EBITDA for the third quarter of 2020.

Executive comment

“The growing focus on brand safety and privacy across the entire industry places us in a unique position of strength as we have invested in these areas from the beginning of our business,” Snap Chief Executive Evan Spiegel said during an earnings call with analysts, reported by Reuters.

“We continued to grow our community and business in a challenging and uncertain environment,” Spiegel said in a press release. “We are grateful that the resilience of our business has allowed us to remain focused on our future growth and opportunity.”

Snap stock forecast

Twenty-five analysts forecast the average price in 12 months at $25.66 with a high forecast of $30.00 and a low forecast of $16.00. The average price target represents a 3.72% increase from the last price of $24.74. From those 25, 17 analysts rated ‘Buy’, seven rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $25 with a high of $32 under a bull scenario and $14 under the worst-case scenario. Snap had its price objective boosted by Goldman Sachs Group to $29 from $25 and gave a ‘Buy’ rating on the stock. Evercore ISI raised the target price to $25 from $23;

Other equity analysts also recently updated their stock outlook for Snap. Deutsche Bank raised its target price to $28 from $24. Canaccord Genuity lifted their price objective on shares of Snap $25 from $15 to and gave the stock a ‘Hold’ rating. Bank of America reaffirmed a ‘Buy’ rating and set a $28.50 price objective. At last, Credit Suisse Group boosted their price target on shares of Snap to $28 from $18 and gave the stock an ‘Outperform’ rating.

We second Goldman Sachs and Bank of America on Snap stock outlook. We also think it is good to buy at the current level and target at least $28 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“How Big Is SNAP’s User Opportunity? We view SNAP’s primary addressable user market as global/North America internet users aged 13-44. We estimate 13%/39% of this demographic were on SNAP in ’16, reaching 15%/53% by ’20,” said Brian Nowak equity analyst at Morgan Stanley.

“How Big Can SNAP’s Ad Business Grow to Be? We see SNAP ad revenue growing as its engaged & millennial audience is attractive to advertisers. Monetization is still in its infancy and we see ad load growing as well. Innovation and improvements in the ad product are key to spurring forward growth. How Profitable Can SNAP Become? We don’t see SNAP generating positive adj. EBITDA until ’22, but expect healthy operating leverage and high FCF conversion once its ad business scales.”

Upside and Downside risks

Less than expected impact from COVID-19; Increased traction in international markets to drive faster DAU growth and ability to increase advertiser count/bid density driving monetization, Morgan Stanley highlighted as upside risks to Snap.

Inability to continue innovating could hold back user/ad revenue growth; Competition from FB, IG, and private players and a recession could cause advertisers reduce lower ROI/experimental budgets, pressuring ad revenue, Morgan Stanley highlighted as downside risks.

EU Rescue Deal Reached, Equities Jump, Ted Baker Rises

A number of ‘frugal’ countries, most notably The Netherlands, were against the original plan of a €500 billion to €250 billion, grant to loan ratio, especially if the grants didn’t have any conditions. It was agreed upon that €390 billion will be issued as grants, and the remaining €360 billion will be dished out as loans. A system will be put in place to help ensure that grants will be used appropriately, but at the moment traders are just focused on the fact that an agreement was reached.

The FTSE 100 is above 6,300 and the DAX 30 hit its highest level in over four and a half months. The bullish mood this morning is also on account of the optimism that is circulating in relation to the progress being made on developing potential Covid-19 vaccines.

Ted Baker, like other companies that have a high street presence, have been hit hard by the lockdown, but the group revealed than online trading has been significantly higher than expected. For the 11 weeks until mid-July, total sales slumped by 50% but e-commerce sales rose by 35%. The online sales equated to 69% of total sales, which is a huge improvement on the 25% it made up last year. The fashion house stated that trading has been ahead of the base case scenario that was mapped out last month, and that it has made a good start on achieving its full year 2023 goals.

TalkTalk shares saw volatility this morning as the company confirmed it achieved a significant improvement in average revenue per user (ARPU) in June and July, which promoted the company to say its expects to see an improvement in APRU for the rest of the year.

The pandemic impacted the business and it expects the cost to be £15 million, as bad debts are likely to be an issue. Stripping out voice usage and the pandemic impact, there would have been no difference between fourth quarter and first quarter ARPU. The group saw a decline in net debt and it expects earnings to remain stable or possibly even grow a little. The stock initially traded higher but it is now in the red.

AO World revealed an employee incentive plan. The scheme is designed to encourage employers to deliver a better service to customers as well as loyalty to the group. Essentially, if the market capitalisation is driven beyond a certain level – 30% higher from Monday’s valuation at the close – 10% of the additional value will be distributed to the employees as a part of the scheme. The measure is likely to boost morale and in turn help the business.

GVC shares are in the red this morning as HMRC announced it is expanding its investigation into its former Turkish online business. The update from the gaming company was short, but it said the UK tax authority is examining any ‘potential corporate offending’ by an entity within the GVC group.

Bloomsbury’s Publishing revealed an 18% rise in 4 month revenue to the end of June. The lockdown helped digital sales surge by over 60%.

The continued weakness in the US dollar has helped GBP/USD. In June, UK public sector net borrowing was £34.8 billion, while economists were expecting £34.3 billion. The May reading was revised to £44.7 billion, from £54.5 billion.

IBM shares pushed higher in post-market trading last night following the release of well-received second quarter results. EPS was $2.18, topping the $2.07 forecast. On a yearly basis, revenue slipped by 5% to $18.12 billion, but that exceeded the $17.72 billion consensus estimate. Gross margin was 48%, up from 45.1% in the first quarter. The cloud and cognitive division registered a 3% rise in revenue to $5.75 billion, and that was fractionally ahead of analysts’ estimates.

Snap is in focus as it will post its second quarter numbers tonight. The first quarter loss was $306 million, which was a slight improvement on the $310 million loss that was posted one year previous. Traders will be keen to see if the loss narrows further. In the first three months, ARPU increased by 20%, while total revenue rose by 44%.

We are expecting the Dow Jones to open 220 points up at 26,900, and the S&P 500 is called up 24 points at 3,275.

By David Madden (Market Analyst at CMC Markets UK)